Mutual Rescission Agreement: Reasonable and Additional Benefits in Turkish Case Law

Introduction

Although not explicitly regulated under Labor Law No. 4857 ("Labor Law"), the Mutual Rescission Agreement ("Mutual Rescission Agreement"), which has become well-established in practice and judicial precedent refers to the agreement signed by both parties of the employment agreement, mutually consenting to terminate the employment relationship.

This type of agreement is founded on the principle of freedom of contract, as outlined in the Turkish Code of Obligations. It aims to terminate the employment agreement through mutual consent. However, it is essential to address the elements of this agreement, particularly the benefits that must be provided to the employee, in line with the principle of "interpretation in favor of the employee " as required by the legislator. [1] 

Elements of the Mutual Rescission Agreement

Both fixed-term and indefinite employment agreements can be terminated by mutual consent through a Mutual Rescission Agreement. The law does not impose specific formal requirements for Mutual Rescission Agreements, meaning they are not subject to a prescribed written form. Nevertheless, in practice, it is crucial for these agreements to be in writing to avoid future conflicts and to provide evidence of the agreement's existence.

According to the principle of freedom of contract, the parties are free to determine the content of the agreement, provided it does not violate mandatory laws, public order, public morality, or personal rights. Under legal precedent, the following requirements must be met for a mutual termination agreement to be valid:

• There must be no circumstances that render the agreement null and void under Article 27 of the Turkish Code of Obligations.
• The parties must be fully informed about the agreement’s content, and their consent must not be impaired by defects such as error, fraud, or duress.
• The employee must derive a reasonable benefit from the agreement.
• Both parties must express their mutual intent, and the employee’s declaration[2] must be without reservations.

Review of Reasonable Benefit and Additional Benefit in Practice

As established by the Court of Cassation, since both the employee and employer mutually agree in the termination, this cannot be considered as a termination initiated solely by one party.[3] As such, the employee does not have access to certain legal rights that would apply in the event of termination by the employer.

Given that Mutual Rescission Agreements may require the employee to waive rights provided under employment security provisions, the Court of Cassation has established a criterion for “reasonable benefit” to protect the employee. This criterion emphasizes that the validity of a Mutual Rescission Agreement depends on identifying which party initiated the agreement.

• Mutual Termination Offer Initiated by the Employee

If the mutual termination offer comes from the employee, the Court of Cassation does not deem it mandatory to provide the employee with any additional benefits. In such cases, payment of the employee's severance pay, notice pay, and any other outstanding labor claims, if applicable, is generally deemed sufficient:

 "(...) In the specific case, the plaintiff (employee) expressed their intention to terminate the employment agreement in a petition, which they did not deny, and the defendant (employer) also expressed the same intention, resulting in the contract’s termination. Since the mutual termination offer originated from the plaintiff (employee), no additional benefits beyond severance pay are required. No circumstances invalidate the petition, and an agreement has been reached regarding the payment of compensation. Therefore, the termination of the employment agreement must be deemed mutual(...)" [4]

• Mutual Termination Offer Initiated by the Employer

If the mutual termination offer comes from the employer, the situation is assessed differently. In this case, the employee waives employment security rights that would have been applicable had the employer terminated the contract. Consequently, to ensure the Mutual Rescission Agreement's validity, the employee must receive additional benefits beyond their legal entitlements:

 "Therefore, for the plaintiff to enter into a Mutual Rescission Agreement that waives their employment security rights, their reasonable interests must be protected. Since the agreement with the plaintiff did not provide additional benefits beyond the legal payments due upon termination, the termination cannot be considered mutual.”[5]

Scope of Reasonable Benefit

 The scope and amount of reasonable benefit that must be provided to the employee is assessed on a case-by-case basis. Factors such as the employee's seniority, job position, length of service, and whether they are covered by employment security provisions are crucial in determining the reasonable benefit.[6]

Although the criteria for "reasonable benefit" vary in each case, as per the Court of Cassation's decisions, in practice, an additional benefit equivalent to at least four months' salary, in addition to legal claims, is generally considered reasonable.

Reasonable benefit does not always have to be purely monetary. Since the employee will not be eligible for unemployment benefits following a Mutual Rescission Agreement, other rights and benefits—such as social rights or insurance benefits—may also be included as part of the additional benefit.

Moreover, if there is a non-compete agreement separate from the employment agreement, the Mutual Rescission Agreement does not invalidate it.[7] The non-compete agreement remains enforceable under the Turkish Code of Obligations.

Evaluation and Conclusion

The Mutual Rescission Agreement aims to prevent the employee from pursuing lawsuits related to the termination, including reinstatement claims and claims for wages and rights under employment security provisions. To ensure the employee waives their right to seek legal recourse and to prevent future disputes, the employer must ensure that the Mutual Rescission Agreement satisfies all legal validity requirements.

When the mutual termination offer comes from the employer and is accepted by the employee, the employee must be provided with an additional benefit beyond legal entitlements. While the criteria for "reasonable benefit" can vary depending on specific circumstances, this additional benefit is an absolute requirement for the agreement's validity.

In practice, if the mutual termination offer originates from the employee, payment of their legitimate benefits is appropriate. However, if the offer originates from the employer, the minimum additional benefit of at least four months' salary—in addition to their legal rights—emerges as the standard.

As a result of the Mutual Rescission Agreement, the employee cannot file a reinstatement lawsuit, as the employment agreement has not been terminated by the employer. Nonetheless, to ensure the validity of the Mutual Rescission Agreement and prevent future claims, the employer may choose to provide additional benefits, considering the employee's seniority, qualifications, and specific working conditions.

With thanks to Ayşenur Aslan for her contributions for translation of the article.

References

(Only in Turkish) Court of Cassation 22nd Civil Chamber, 03.10.2018 dated and E. 2018/11424 K. 2018/20929 numbered Decision. (2018, 10 03).

(Only in Turkish) Court of Cassation 22nd Civil Chamber, 14.04.2016 dated and E. 2016/7161 K. 2016/11013 numbered Decision. (2016, 04 14).

(Only in Turkish) Court of Cassation 22nd Civil Chamber, 21.10.2015 dated and E. 2015/27200 K. 2015/29425 numbered Decision. (2015, 10 21).

(Only in Turkish) Court of Cassation 9th Civil Chamber, 26.03.2018 dated and E. 2017/21980 K. 2018/6265 numbered Decision. (2018, 03 26).

(Only in Turkish) Court of Cassation 9th Civil Chamber, 26.11.2018 dated and E. 2018/2735 K. 2018/21455 numbered Decision. (2018, 11 26).

(Only in Turkish) See Court of Cassation 9th Civil Chamber,11.05.2016 dated and E. 2015/31182 K. 2016/11766 numbered Decision. (2016, 05 11).

Atlan Kazan, H. (2012). (Only in Turkish) İş İlişkisinde Rekabet Yasağı Sözleşmesi. Legal İş Hukuku ve Sosyal Güvenlik Hukuku Dergisi, 36(9).

Court of Cassation 22nd Civil Chamber, 14.01.2014 dated and E. 2013/37017 K. 2014/196 numbered Decision. (2014, 01 14).

Court of Cassation 22nd Civil Chamber, 14.04.2016 dated and E. 2016/7161 K. 2016/11013 numbered Decision. (2016, 04 14).

Court of Cassation 9th Civil Chamber,14.09.2015 dated and E. 2015/17239 K. 2015/25415 numbered Decision. (2015, 09 14).

Yıldırım Coşkun, A. (2023). (Only in Turkish) Türk İş Hukukunda İkale. On İki Levha Yayıncılık.